In 1972 the Miami Dolphins had a remarkable run of success. Led by coach Don Shula the team won all 14 of their regular season games and all 3 of their NFL playoff games, including Super Bowl VII.
The “Perfect Season” is a feat that’s never been repeated, though the New England Patriots came close in 2007.
But let’s say that a hypothetical friend of yours becomes an NFL coach and one day confides in you that he has a foolproof plan for going undefeated and winning the Super Bowl. Intrigued, you ask how he can be so sure.
He replies, “I have Don Shula’s playbook from 1972.”
You don’t have to know anything about football to see right away that this isn’t going to work. For example, any team you go up against has already seen these kinds of plays and has years of experience defending against them. In fact, Don Shula’s playbook didn’t even work all the time for Don Shula. He lost the second game of the 1973 season.
While it’s obvious that simply repeating a successful formula from the past will not result in future wins in sports, many people still believe that this strategy will work for investing.
You’ll find evidence that investors are expected to believe an impressive track record should be enough to predict the future simply by observing paid subscription financial newsletters. This thriving industry of forecasters claims (or at least implies) that they will give you strategies for beating the market. One example says that their ability to pick hedge funds allowed them to beat the market by 55%. And if that wasn’t convincing enough, their investment strategist has a PhD.
But if you read all the way down their sales copy to their disclaimers, you see this relevant piece of information: “Our strategy outperformed the market in the past and in our backtests. However, this doesn’t guarantee that it will outperform the market in the future and on a consistent basis. Professional investors know there aren’t any stock picking strategies that can beat the market consistently.” (Emphasis added.)
So basically they’re selling you the equivalent of Don Shula’s 1972 playbook—an interesting artifact authored by brilliant people, but not a recipe for reliable future success.
As we’ve said before, the prices in the market almost instantaneously take into account all available and assumed information. So buying stocks that are somehow “grossly mispriced” is rare. Doing so consistently is nearly impossible.
Because saving for retirement is a long-term objective, you need a strategy that’s designed to work over decades, one that takes into account the unpredictable nature of the market. We are always ready to discuss and demonstrate how a diversified portfolio with prudent adjustments and a commitment over time can help give you the best opportunity for achieving long term investment success, because it’s the foundation of your long term retirement income success.