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Observations on the Investment Process

By Ben Carlson, A Wealth of Common Sense

A few random observations on the investment process:

1. Good investment advice will always sound the best and make the most sense when looking back at the past or planning ahead for the future. It will rarely sound so great in the moment when you actually have to use it.

2. Depending on which side of the aisle they are on, professional investors are constantly debating, mocking or defending the Efficient Market Hypothesis (EMH). But rarely do you hear sophisticated investors discuss ways to make their portfolios and investment process more efficient, which would serve them far better over the long-term.

3. These days I almost find it amusing when people are surprised by short-term market outcomes. Last week after three straight days of big losses, stocks rallied yet again. I saw a few snarky comments like, “Yeah this is totally healthy behavior.” People are in constant search of an explainable narrative on the markets. There’s never going to be a “normal” or “healthy” market.

4. People in the investment industry are always congratulating each other (and sometimes themselves) for making good calls on their predictions or forecasts. Great call on that stock. You really nailed that call on the Eurozone. Rarely, if ever, do you hear someone praised for their process, which is far more important in the long-term. If you’re investment plan consists of being right on a never-ending series of “calls” you’re going to have a difficult time in the markets. No one is right on a consistent basis trying to call everything. Making fewer decisions is almost always a smart move for investors.