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Just like a Navy SEAL, the Intelligent Investor knows that good investing can hurt some of the time.
Okay, maybe a lot of the time.
Morgan Housel from the Motley Fool cites a study just conducted by Research Associates.
Of 350 mutual funds available to investors in 1970, only 100 survived through 2014. The other 250 closed, or were merged with other funds. Of the 100 that survived, 45 beat the market over the whole period; 42 of them beat it by less than two percentage points per year.
So what? Everyone knows that many mutual funds can’t consistently beat the market.
What’s remarkable is that the three “superstar” funds that did beat the market by more than 2 percentage points a year for 45 years, spent, on average, a third of the time underperforming the market on a rolling three-year basis.
As Housel points out:
The same thing happened to Warren Buffett in the 1990’s, when everyone was getting themselves wrapped up in the dot-com craze.
Buffett was widely chastised by analysts and the media throughout the late 90’s for not jumping aboard the internet train. People called him too old, too conservative, out-of-touch, and a has-been.
But Buffett (i) didn’t understand many of the new tech stocks, and he doesn’t invest in what he doesn’t understand, and (ii) saw the bubble being created by outlandish valuations (in March 2000, the P/E for the Nasdaq was a sky-high 175!).
To be sure, Buffett felt a lot of pain during this period, as he both underperformed the high-flying internet stocks and was ridiculed for doing so. His biography, The Snowball, even opens in July 1999 in the midst of this very drama.
But in the end, Buffett adhered to his Intelligent Investor principles, endured the pain, and had the last laugh.
What was the worst pain you ever felt while investing? How did you get through it? Tell us about it in the comments section!