I loved this bit of wisdom from the legendary Peter Bernstein, as quoted by my friend Jeff Saut this morning:
After 28 years at this post, and 22 years before this in money management, I can sum up whatever wisdom I have accumulated this way: The trick is not to be the hottest stock-picker, the winningest forecaster, or the developer of the neatest model; such victories are transient. The trick is to survive! Performing that trick requires a strong stomach for being wrong because we are all going to be wrong more often then we expect. The future is not ours to know. But it helps to know that being wrong is inevitable and normal, not some terrible tragedy, not some awful failing in reasoning, not even bad luck in most instances. Being wrong comes with the franchise of an activity whose outcome depends on an unknown future (maybe the real trick is persuading clients of that inexorable truth). Look around at the long-term survivors at this business and think of the much larger number of colorful characters who were once in the headlines, but who have since disappeared from the scene.
This echoes Howard Marks’s proposition – that by being in the second performance quartile of your category consistently over a long enough period of time, you become first quartile by virtue of the fact that you never took the risks that blew up so many former first quartile performers.
It’s one of the first things we teach prospective clients on their way in to the firm, and a lesson we repeatedly bring out when the markets are booming and people begin to lose their minds.
“Being Wrong and Still Making Money”
Raymond James – March 13th, 2017