Our bottom line result is that perfect foresight has great returns, but gut-wrenching drawdowns. In other words, an active manager who was clairvoyant, and knew ahead of time exactly which stocks were going to be long-term winners and long-term losers, would likely get fired many times over if they were managing other people’s money.
an interesting article about volatility and stock picking
actually a good argument for B&H . If you have the guts to stick it out, snd if you don’t get hit by a black swan or 1918 Russia type event .
Interesting article Mauser,
I found it very surprising that you could pick the very best 50 stocks every five years IN HINDSIGHT (!) and only get 30% annualized returns. I guess that is because of the 5 years blocks and buying all 50.
I mean really, Warren Buffet averaged 24% and Saul claims a similar or better number. The only way I can think of is that buying a concentrated portfolio of a few (and picking correctly) will do better. Still pretty amazing to think about.
The other interesting fact and somewhat the point of the article, even when you pick the correct stocks, there are very significant market corrections along the way. To me, that means just because your portfolio is taking a significant hit, that doesn’t mean you want to buy or sell anything. It may mean you just need to ride it out. That you have the right stocks but the markets just need to recover.
In any event, it is an interesting read.