The Quest for Investing Excellence and the Lesson of Dow 20K

The new movement to passive investments is a sharp break from the historical quest for excellence. Many articles claim that no one can do better than the market average. If that is true, you should just throw out your investment library and skip the popular lists of “best investment books.”

This post will suggest a short list of books that would have needed quite different titles. They also would not have become best-sellers! In the conclusion, I will provide some ideas about why this is important for your investment decisions. Here are the hypothetical titles followed by a cover shot of the real book. Suggestions for more examples are quite welcome!


In Search of Mediocrity

Market Sheep

The Average IQ Investor

The Little Book that Equals the Market

Common Stocks and Average Profits

Buffett: The Making of a Lucky Investor

Stay Even with Wall Street


In this series on investment expertise I have (so far) covered the following:

  • There are indeed experts. Sometimes it is obvious, and sometimes they are difficult to find. Consider the case of Phil Mickelson.
  • Forecasting is not always folly. I provide specific examples of expertise, and a checklist for finding the best modeling experts.
  • Dow 20K. The round-number milestone has finally been achieved – at least for today! There are many who are stepping up to claim some credit for their prediction on this front. Some were way too early, and others made the call as we got much closer. Each prognosticator had a method.

My own Dow 20K forecast came when the Dow was at 10,000 and many prominent pundits were calling for Dow 5000! My opinion was controversial at the time. Check out the history of the forecast to remind yourself of how bad things were (unemployment over 10%, and I was ridiculed for suggesting it might fall to 8%).

While it is nice to get some recognition (like this spot from CNBC when we got close to the milestone last month), I see it more as a validation of my methodology. I seek out the best experts. I am constantly looking for excellence. I know that I do not have all of the answers, but my background taught me how to search and to learn. Following superior methods helped to keep my readers and clients on the right side of the market through a long rally hated by most of the punditry and many traders.

There are many paths to trading and investment success. Mine was not the only way, but it was a good way. Having strong evidence and indicators is crucial for confidence.

What Now?

Most of the key factors I see as important are still in place. I summarize them each week. The list of worries has changed a lot but it is still there. The time will come to pull back – but it is not here yet.


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One comment

  • TK January 27, 2017  

    Isn’t “average” (market returns in investing and par in golf) often actually superior performance?

    As an avid golfer myself, we know par is “average.” Generally par for most courses is 72. A golfer who consistently shoots 72 is, by definition, average. But the true average score for amature golfers is closer to 100. So a golfer who achieves the “average” is in reality, superior to his or her peers.

    The S&P 500 Index “averaged” a return of 9.85% per year for 20 years (as of 12/31/2015) whereas the average equity fund investor saw returns of ~5.19% over the same period. I know that’s a bit simplistic, but again, average was excellent by comparison.

    Using an allocation based on where I believe we are in the business cycle (with help from you and your sources) among low cost index funds (total stock, small cap, total bond, etc.) has worked well for me personally. This mostly passive indexing will allow me to retire later this year in my early 50s.

    Hopefully that will translate into more time in perfecting one wicked flop shot!