Beating Your Own Investments

Add Julian Robertson and Howard Marks to the long list of billionaires that are less than optimistic about the future. All the reasons they cite are unfortunately very compelling, but pessimists always sound intelligent. You can probably count on one hand the number of investors that were actually able to capitalize on their pessimism.

But let’s say all these billionaires are right and U.S. stocks will in fact experience lower returns going forward. A good strategy would be to have your rate of investment outpace the return on your investment. As an example, let’s say you’ve saved some money and have $10,000 to invest. And let’s also assume that you add an additional $100 a month and grow that investment by 1% a month, so that by month two you’re investing $101, $102 by month three and so on. By the 240th month, your last investment in your future of $1,078 will be 978% higher than your initial $100 deposit. A total of $109,000 invested will turn into $138,788 if you earned 3%, $151,481 if you earned 4%, and $164,100 if you earned 5%. Not great, but not terrible either.


The last time U.S. stocks had a twenty-year period that compounded at less than six percent was in the early 1950s as we slowly recovered from the great depression. But nobody can be certain that low returns won’t happen again and in fact, I’d guess it’s likely they will at some point. Maybe Central Banks are inflating bubbles right now and I just don’t know it. Or maybe past is not prologue and in three hundred years people will look back at the twentieth century and realize those high returns for U.S. stocks was an outlier.


If we are in a low return environment, there are two ways alchemists can get high returns: they can either pick stocks that do better than the market, or they can time the market, both difficult propositions and games that I personally have no desire to play. I can’t control the returns that the market will deliver, but by investing at a higher growth rate than my investments, I can stack the odds in my favor.