Meaningful Returns

My wife, bless her, does not drink coffee. She hates coffee only slightly less than she hates cigarettes–which is a lot–and is, curiously enough, repulsed even by the SMELL of coffee.

But coffee is one of the world’s greatest gifts, in my opinion, so I ask her almost every day if I can make her a cup. She always says no (see paragraph above.)

Persistence can be a good quality, but like honesty it is heavily dependent on some other quality or state of being. Just like you can be really honest about being a Duke fan, you can be persistent at the wrong things. Note that I’m not saying my persistence in trying to get my wife to drink coffee with me is at all wrong. I’m clearly on the moral high ground. But still, you CAN be persistent at the wrong things.

One of those things, within the broad context of money, is persistently looking for money managers to beat the stock market with your money.

1. It is very unusual for any money manager to beat the stock market over the long haul.
2. It is nearly impossible (unless you happen to be clairvoyant) to know who those managers will be when you make your decision to hire.
3. It is also nearly impossible for most people–if they were to get lucky enough to get past the first two hurdles–to stick with the outperformers, because those managers by definition must do things with your money that are hard to stomach.

And the problem is, this persistence creates all kinds of transaction costs and fees and underperformance, slowly but surely eroding your wealth and all of the people and neat things that depend on it.