Trying to be a merely good investor can make you a very good one, but trying to be the best investor can easily turn you into a terrible one
— Eddy Elfenbein (@EddyElfenbein) December 28, 2014
This is one of the enduring paradoxes of investing: effort has very little correlation with outcome. Every hedge fund manager out there is trying to generate abnormal returns. Very few actually do. That is one of the heartening things about the rise in indexing. More investors are recognizing that their time can be better spent on things other than fund/stock selection and market timing.
John Woerth at the Vanguard Blog has a very good list of seven, relatively simple, things investors should do when prioritizing their investments. You won’t find much in there about active management. Woerth explains, at an 11-year old level, why indexing can paradoxically lead to above average outcomes. He concludes with some general investment advice:
Avoid complex investment products. Understand the ones you do own and the purpose they serve in your portfolio. You can build a pretty darn good investment program with 4–5 asset classes. My father, an engineering professor, emphasized the KISS principle while I was growing up: Keep it simple, stupid.* There’s a lot to be said for that.
This all about making your investment life more manageable. As noted above the pursuit of ever better outcomes is likely to lead to progressively worse outcomes. That brings to mind a quote from Brenda Jubin at Reading the Markets:
The message is this. In 2015, strive to be good, better, and, if you swim in a small enough pond, best, but never perfect. Perfection is a mirage. End of sermon. No amen necessary.