What GameStop Reminds Us

The way to wealth--real wealth, not the equivalent of gambling winnings--is the way you get better at most anything. Practice it, stick to it, and keep at it, even when things look hopeless.

That last bit is really important. When the sky is falling like it was a little over a year ago, it's tempting to run and take cover. But running for cover--by which we mean stopping making regular investments, or, worse, selling investments in a panic--will very likely do long-lasting damage to your portfolio. Buying when there's blood in the streets (figuratively speaking, hopefully) is almost always a sure way to outperform those who panic.

As an individual investor, you actually have advantages the pros--active portfolio managers--do not. You may not have access to a Bloomberg terminal or investor relations contacts on speed dial. But you have the ability to stay the course, which active managers sometimes don't.

Say you're a mutual fund manager when a bear market hits. You have seen this movie before--you know you just need to sit tight and ride it out, and even make some strategic purchases if certain holdings get cheap enough.

The trouble is, you can't. You have panicked investors making redemptions--that is, they want out. They want their money back. So you have to sell stocks--maybe stocks you really like and would like to buy more of--at exactly the wrong time so you can fulfill the redemption requests.

That's a greatly simplified example of what can happen, but variations on it do happen to professional money managers all the time. It's one reason why so few mutual funds beat the indexes they're best matched to. Some funds do beat their indexes, of course, but very few. Do you think you are going to be able to pick the right 10% or so of the thousands upon thousands of mutual funds that beat their indexes over 15- or 20-year periods?

Nothing New Under The Sun

There will be further distractions, fads, and manias that we cannot even conceive of right now. Quick fortunes will be made, and it might be tough to watch from the sidelines. But the risk is simply too great that, in what is often basically a game of musical chairs, your chair will disappear--and with it a good chunk of retirement change. Stick to what you know and what has always worked over time; get wealthy slowly; and look on, smugly if you must, at the folly of your investing peers.

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