You Don't Need Perfect Knowledge To Invest Well
Published Wednesday, February 7, 2018 at: 7:00 AM EST
If you had the power to predict which one of 12 types of investments representing a wide range of assets was going to be No. 1 every year for each of the 15 years from 2002 through 2016, you would have averaged a 29.9% annual return.
Of course, no one has the power to predict which investments will be No. 1 every year. Surprisingly, accepting that you cannot predict the future and maintaining equally-weighted positions in the same 12 types of investments in the same period averaged a 7.5% annual return with less volatility.
To be clear, to get that 29.9% return every year from 2002 through 2016, you would have had to invest 100% of your portfolio in the No. 1% asset class on January 1 and held it until the end of the year, and then bought the coming year's leader. The yellow boxes highlight the No. 1 asset classes in each of those 15 years. On January 1, 2003, you would have had to choose which one of the 12 types of investments would be No. 1 again, and you would have had to do that annually for 15 years to average a 30% return.
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