The Tales Of The Unluckiest Investor In The Stock Market
Even if you haven’t delved into Ben Carlson’s insightful book, “A Wealth Of Common Sense,” you may be familiar with the renowned tale of Bob. Bob is the Unluckiest Investor to have lived, or so it seems.
This narrative serves as a valuable lesson, particularly during times of extreme volatility and plunging stock prices. Whether Bob is a mere fictional character or not, the essence of the lesson remains worth sharing.
I bring up Bob now because the global and Australian inflationary pressures have triggered concerns among many individuals. This serves as an opportune moment to revisit the stories of Bob, the unluckiest investor.
Amidst macroeconomic anxieties, both investors and short-term traders are grappling with turbulent times in the stock market. You may contemplate selling off your portfolio and waiting on the sidelines for clearer skies.
But before you do, remember that those who sold during the 2020 market crash missed out on the swiftest stock market recovery.
Once again, we find ourselves in uncertain times, grappling with escalating interest rates and inflation. Investors are demanding higher returns for riskier assets, leading to a decline in share prices. However, it is precisely during these periods of market uncertainty and pessimism that the greatest returns await.
You may appear foolish in the short run, but over the long term, remarkable gains can be achieved by owning exceptional businesses.
If you still doubt your own investing abilities, let’s turn our attention to the tale of Bob, the unluckiest investor.
Meet Bob “The Unluckiest Investor”
The tale of Bob is as follows:
To summarise, these are his purchasing dates and corresponding market declines:
Investment Date | Subsequent Crash | Amount Invested |
December 1972 | -48% | $6,000 |
August 1987 | -34% | $46,000 |
December 1999 | -49% | $68,000 |
October 2007 | -52% | $64,000 |
Total Invested | $184,000 |
The Results Of Being The Unluckiest Investor
We are now aware on Bob’s terrible market timing, and his untimely courage of investing at the market peaks, Yet, amidst the challenges, Bob had one saving grace. Once he entered the market, he steadfastly held onto his shares, driven by a mix of nervousness and the desire to avoid making incorrect selling decisions.
This crucial decision to stay invested is worth remembering, as it had a significant impact on Bob’s investment journey.
Disregarding the absence of index funds in 1972, Bob allocated his entire investment into an S&P 500 index fund at that time. Never did he once sell out of his investments.
He didn’t sell after the bear market of 1973-74 or the Black Monday in 1987 or the technology bust in 2000 or the financial crisis of 2007-09.
How did the unluckiest investor perform over this time?
Even though Bob bought at the top of every market cycle, he made out with $1.1 million dollars at retirement.
If Bob had however dollar cost averaged on an annual basis, his results would have doubled to over $2.3 million. But then, he would not be Bob ‘The World’s Unluckiest Investor’.
Lessons We Can Learn From Bob
We can learn a lot from Bob. The first being his unwavering dedication as a diligent saver which set the stage for his investing journey. He meticulously planned and adhered to his savings goals, gradually increasing the amount he set aside over time.
A key aspect of Bob’s strategy was his unwavering commitment to long-term investing. He allowed his investments to compound and grow over the span of four decades. Never once succumbed to the temptation of selling out of the market and he understood the value of a lengthy investment horizon.
While Bob encountered psychological challenges, witnessing substantial losses but maintaining his steadfast long-term mindset, he chose to focus less on his portfolio. Instead, he remained resolute in his commitment to saving and remained unfazed by short-term market fluctuations.
Bob’s investment plan was refreshingly simple and cost-effective. He opted for a single index fund, minimizing expenses associated with managing his portfolio.
It is important to note that this story by Ben Carlson serves as an illustrative example, and it is not advisable to solely rely on a single stock market index. Unless you possesses an exceptionally high risk tolerance, a more prudent approach involves building a diversified portfolio across different global markets.
But it goes to show that there is no right time to start you investing journey. The stock market will be volatile most of the times, but it is there to serve you. It is up to you to ignore its manic behaviour or succumb to it.
Key Takeaways
- You will make many investment mistakes along you way, but it is better to be optimistic rather than pessimistic. Having a long-term perspective and an attitude that matches a business owner will help you make informed decisions.
- Losses are part of any investment, and stocks are not immune from the risks. How you react to such losses will determine your investment performance.
- Having a diligent savings plan and a religious investment strategy can set you up for life. You do not need high-risk investments to do well in the stock market. Sometimes simple is the way to go.
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