How to be a winning investor – tested rules or professional judgement?


The compound annual growth rate (CAGR) of the S&P 500 Index was 9.85% over the twenty years ending in 2015.  During the same two decades, the average equity fund investor earned only 5.19%, according to research done by Dalbar Inc.

Would the results be different over any other period of time?

This investor performance is based on investors’ judgement about what and when to buy and what and when to sell.

To match the winning S&P 500 CAGR, investors merely have to buy an exchange-traded fund which tracks it and then sit in their rocking chairs. They simply need to follow six tested rules — 1. save, 2. do it your self,  3. buy a share of the entire US economy,  4. buy and hold,  5. rebalance to a personal asset allocation when needed,  6. avoid complexity.

This winning investor performance is based on rules about what and when to buy and what and when to sell.

Rules not judgement.

You don’t need an MBA or a university degree in economics to do that. Monday Morning members can teach the method to a high school student. They understand what Eugene Fama, the famed economist said: “Your money is like a bar of soap. The more you handle it, the less you’ll have.”

Over the course of a market cycle, peak to trough to peak, fewer than 5% of portfolios outperform this simple and logical method of investing. (The only certain way to outperform the market is to practice dollar-cost averaging correctly.)

Where does professional judgement come in? Can skill result in outperformance?

Warren Buffett, widely recognized as one of the most skilful investors in history, has failed to equal the S&P 500 over the last five years.

In his 2017 annual report to shareholders Buffett states:

“I believe the long-term results from this policy (the Monday Morning way of investing) will be superior to those attained by most investors — whether pension funds, institutions, or individuals — who employ high-fee managers.”

Interestingly, most investors don’t realize that they are most investors.

History shows that most investors put more money into the stock market when it rises and when it goes down, they pull money out. They buy overpriced and sell at bargain rates.

The bottom line about the above-mentioned facts is that we should base our investing on rules as much as possible and on judgement as little as possible.

To grow rich, we merely need to practice the six habits of Monday Morning millionaires. They are rules.

We have designed the Monday Morning Millionaire Program to offer abstracted investment education. Over the last two decades, the program has outperformed over 90% of portfolios, including professionally managed ones.

The program does not provide any investment advice or endorsements.

With fewer than 500 words, members can read this post in less than five minutes. Following and studying the links embedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.


Dr. Milan Somborac

The Monday Morning Millionaire Program supports do-it-yourself (DIY) investors which I have been for over 50 years. About my team and me