by theknownothinginvestor

Not knowing is a great source of angst. It can drive you to insanity if it’s a huge “not knowing” problem or it can, at least, cause some anxiety for a couple of day if it’s a minor one – “I wonder what my weird neighbour is doing bagging and digging by the fence!?”.

When mixing “not knowing” with money the results can be quite unpredictable, because we are adding to powerful emotions another layer of complexity. Money has central role in our days life, since enables almost everything that we are suppose to wish for, so losing it can be extremely mentally and even physically painful. More you lose more devastated you will become.

When little fishes, like me, are thrown in the big ocean that markets are we are dealing with a lot of emotions and decisions, thus it’s normal for the average Joe to fail. Then you can try to improve your strategy and market psychology or you can just quit and look elsewhere for returns.

When this happened to me I remember thinking that I would easily trade some uncertainty for less rate of return. For that I needed to know where markets go and if for a single equity is difficult to predict its evolution for an asset class it’s easier and there’s historical data to prove it as we can verify in chart below, courtesy of Ph.D Jeremy Siegel.


The most suspicious will tell “But that was two hundred years ago, what about now? And in the near future?”.  For sure everything will be pretty the same, after all in the last century the World had two major and global wars and markets still surviver and as you can verify by the upper chart they still prospered.

Of course it’s our call to be angst by our market decisions or instead we can soothe our emotions by choosing asset that no matter what will go up.

This doesn’t mean that investing in a diversified portfolio is a walking in the park, it also takes resilience, patience and time. Sometime lots of time.

My portfolio for instance, in Abril 2015, it hitted its all-time high. I was marvelled how easy was to increase my value account. By the end of August I had had a drawdown of more than 20%, which by my previous simulation, when I was choosing the portfolio assets, had only occurred in 2008 subprime mortgage crisis. This was hard but I knew, because of charts like that one from Professor Siegel, that assets eventually would turn around and follow their normal paths and the true was that I still ended the year positive.

Nevertheless, it took almost 18 months to have a new all-time high and with more money involved.

The greatest difference, now, is that I know how markets and assets behave and knowledge as always the ability to make the angst to go away.