“Winning the Investment Game: Insights from Jeffrey Scharf – Santa Cruz Sentinel”

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“Don’t Lose the Game: Avoid Unforced Investment Errors and Make Those Winning Shots!”

Is Investing a Winner’s Game or a Loser’s Game?

When it comes to investing, there is a fundamental difference between a winner’s game and a loser’s game. In a winner’s game, the outcome is determined by the excellence of the winner, while in a loser’s game, the outcome is determined by the mistakes of the loser. Tennis is the perfect example, illustrating how a professional player will generally hit the most winning shots, while an amateur player will exploit their opponent’s errors.

The Power of Minimizing Investment Errors

Investment success doesn’t always have to be a question of who can achieve the highest return; much of the time, it’s a matter of who can reduce their losses. Basic math makes this clear – an investor who loses 50% in Year One but shows a gain of 50% in the following Year will still be down 25%, while someone who makes a 100% return followed by a 50% loss is simply back to their starting point. For investors who face an 80% loss, things look much bleaker, requiring a ludicrous 500% gain to get back to even.

The Last Two Years’ Investment Performance

In recent times, it’s been difficult for investors to make up the losses they’ve accrued. “The Magnificent Seven” stocks – Alphabet, Amazon, Apple, Microsoft, Meta, Nvidia and Tesla – have certainly shone in terms of market value, enjoying an average return of 89% in 2023. However, the same stocks experienced an average drop of 46% in 2022, with four of the seven ending 2023 worth less than they were two years prior. Over the combined two-year period, they lost an average of 4%.

Avoiding Unforced Errors for a Winning Investment Strategy

Conversely, those investors who managed to hold these stocks during the two-year period – making no other moves – still stand a chance of making a profit, obviously depending on any changes between now and then. Such a scenario demonstrates the dangers of unforced errors, such as those suffered by Silicon Valley Bank, whose business model backfired when interest rates rose higher than the long-term investments they made with uninsured deposits. Other errors include investing in money-losing companies with a view to achieving greater gains in the long run or backing temporary fads that quickly pass.

Conclusion

At the end of the day, investing is still all about creating winners and avoiding losers. While everyone dreams of great success from their investments, it’s much more enjoyable to actually win the game and make a profit. By being aware of the dangers presented by unforced errors, investors can greatly improve their chances of success.