When it comes to investing, you don’t need to beat the best to be the best.
In fact, trying to get the best returns in any given year is almost the exact wrong way to think about getting good investment returns over time.
Why? Two related reasons.
First, to get the highest returns, you need to take on bigger risks. And in good years, that’s great. You look like a genius (think crypto, meme stocks, or pandemic darlings in 2021).
But in bad years, all that risk backfires and you end up doing far worse (think crypto, meme stocks and pandemic darlings this year).
And that brings us to the second reason: investing isn’t a series of sprints. It’s a marathon.
And when it comes to winning a marathon, it’s consistency that matters most. Big losses are too painful and take too long to recover from. You don’t get to wipe the score clean.
Understanding this idea is key, because it makes you realize that there’s no reason to take risky bets and chase sky-high returns. That’s not how you win a marathon.
Instead, the key is to focus on getting consistently good returns, and that means hedging your bets and reducing your risk, so that in bad years, you still do far better than most.
The winning strategy is to play the long game. That’s what investing is.