Why did you still get soaked even while using an umbrella in a thunderstorm?
The world is so chaotic these days that it makes you want to turn off your phone.
The smoke from the Russia-Ukraine conflict has barely cleared, and the powder keg in the Middle East is already hissing; a sneeze from the Federal Reserve can send a chill down the global currency market; so-called "globalization" is receding, replaced by "decoupling" and "supply chain restructuring."
As an ordinary person, you're incredibly anxious about the little bit of hard-earned money you've saved. You feel you need to "make some moves": buy some AI concept stocks to hedge against inflation, research geopolitics and buy some military stocks, or even keep an eye on the color of Federal Reserve Chairman Powell's tie. You think you're "strategizing," but in the eyes of Larry Swedroe, the Wall Street data guru, your efforts are essentially just sending your troops to their deaths.
In his latest masterpiece in 2024, Enrich Your Future, Larry E. Swedroe uses 42 hardcore reasons to tell us a painful truth: in this financial battlefield where "special forces fight special forces," giving up stock picking is the best financial decision you will ever make.
Today, we'll tear away the fig leaf of the so-called "wealth code" and see how ordinary people can survive in the Thucydides Trap of great power rivalry.
01 The Skill Paradox: You're not trading stocks, you're racing Usain Bolt in the Olympic finals.
Many retail investors have a misconception: as long as I am diligent enough to read through financial reports and understand the news, I can win.
Sridro poured cold water on the idea: Today's stock market is no longer the era of cold weapons where retail investors fleece each other.
In the 1940s, retail investors accounted for 90% of trading volume; back then, you could indeed dominate the market with a machine gun. But now, over 90% of trading is done by institutional investors. Who are your counterparties? They are "special forces" employing thousands of physics PhDs, monitoring container terminals with satellites, and harvesting market fluctuations with millisecond-level algorithms.
This is the "skill paradox": when everyone becomes extremely intelligent and the tools are extremely advanced, the differences between people disappear, and the outcome ultimately depends on luck.
Think about NVIDIA recently. When you see "computing power equals power" on TikTok, those institutions' AI web crawlers have already factored the positive news into the stock price within microseconds. The moment you click the buy button, the stock price already includes all the rosy expectations. You think you're buying the future, but actually you're buying what others have already eaten—leftovers.
Sridro used a vivid analogy: sports betting. The odds offered by betting companies (such as Duke University giving a 20-point advantage) are a "collective consensus" reached by thousands of gamblers with real money. To win, you need to be smarter than the collective wisdom of everyone else. The stock market is the same; unless Usain Bolt suddenly collapses in the 100-meter final, you have no chance of winning.
02 Great companies are not necessarily great stocks: Lessons from that "mysterious Eastern power"
Many people say, "I won't speculate in the short term, I'll just buy good companies, okay? I'll buy Apple, Amazon, and Nasdaq."
Sridro offers the most counterintuitive viewpoint in the book: buying stocks of great companies often yields lower returns than buying stocks of "bad companies".
Why? Because in an efficient market, risk and return are proportional. Everyone knows that good companies are stable and low-risk, so they flock to them, driving up stock prices. High valuations are like a fully stretched spring, already mortgaging decades of future growth, resulting in mediocre returns after you buy in. On the other hand, those "junk companies" in declining industries and burdened with debt, because their prices are cheap enough, will see their stock prices bounce back like a flattened spring as long as they don't go bankrupt and perform even slightly "not so badly."
While Sridro didn't explicitly state it, we can look at a certain "mysterious Eastern superpower." For decades, this country has boasted some of the world's fastest GDP growth, but this hasn't translated into spectacular stock market returns. Why? Because economic growth doesn't equal stock market returns. If expectations are too high, IPOs raise too much money, and existing shareholders' equity is diluted, then even if the country is powerful, ordinary investors are merely stepping stones for grand narratives.
The conclusion is disheartening: a good company isn't necessarily a good stock. If you only chase after hot stocks, you might be taking on extremely high premium risks while receiving mediocre returns.
03 4% of the truth: Why can't you always choose "the next Tesla"?
You might disagree: "If I just pick that one 'monster stock' that goes up tenfold, wouldn't I be financially independent?"
Sridro cited Bessenbinder's research: In the past 90 years of US stock market history, a staggering 58% of stocks have had a cumulative return that is less than that of a fixed deposit in a bank!
The wealth growth of the entire market is created by only the top 4% of stocks. The remaining 96% are just filler. Stock picking is like finding a needle in a giant haystack. If you're unlucky and miss out on those 4% of super-performing stocks, your investment career will be a disaster.
Many people dreamed of buying a Tesla in 2010. But the truth is, countless electric car companies went bankrupt and were liquidated before Tesla became famous. What you're seeing is simply survivor bias.
The essence of passive investing (buying index funds) is not about defense, but about "catching everything." I don't pick needles; I buy the whole haystack, and those 4% of top performers are sure to be in my pocket.
04 Tear up the "financial porn": Why can't you even trust the punctuation marks on the experts' words?
Known as the "data maniac" on Wall Street, Sridro's favorite pastime is proving high-fee fund managers wrong.
He believes that most so-called star fund managers are simply lucky winners in a "coin toss game." If you give a coin toss to ten thousand people, a few will guess correctly ten times in a row. You might think they're geniuses, but they're just products of probability. Research shows that over 90% of actively managed funds underperform the market over a 15-year period.
Ironically, due to the "curse of success," the more successful a fund manager is, the more money flows in, and the size of the fund becomes the enemy of performance. In the end, he can only be forced to buy large-cap stocks and become mediocre.
As for those seemingly knowledgeable analysts on television, Sridro bluntly calls them "the porn of the financial world." Their role isn't to help you make money, but rather to constantly create tension and excitement, causing you to release dopamine and thus trade frequently.
Look at those once-revered "wooden sisters" or various star fund managers. When the tide turned, they suffered the most severe losses. Chasing after past hot funds is like driving while looking in the rearview mirror—a crash is inevitable.
05 Practical Guide: How to survive like a hedgehog in chaotic times?
After so many negative statements, where exactly does the path to survival lie for ordinary people? Sridro offers his ultimate answer: passive investing and asset allocation.
In the context of global geopolitical instability and deglobalization, the risks associated with a single country or industry are unbearable for ordinary people. Passive investing is not admitting defeat; it is the most robust form of hedging.
1. Embracing the “only free lunch”: Globalization and decentralization
Diversification is the only free lunch in the investment world. Don't just buy stocks from your own country; allocate your portfolio to global ETFs. When geopolitical conflicts erupt, a decline in one region is often offset by a rise or stability in another.
2. Building Storm-Resistant Ships: Asset Allocation
Don't try to predict black swan events, because they are inherently unpredictable. You need to include high-grade bonds (such as government bonds) or gold in your portfolio as a shock absorber. When the stock market crashes, bonds usually remain stable or even rise, providing you with valuable liquidity so you have money to "buy the dip" when others are fearful.
3. Automated buying low and selling high: rebalancing
Passive investing doesn't mean doing nothing. You only need to spend an hour each year selling stocks that have risen too much and buying more of those that have fallen too much. This mechanical rebalancing allows you to defy human nature and achieve "buying low and selling high" without requiring any predictive ability.
4. Curing your regret: Invest in installments (dollar-cost averaging)
While mathematically speaking, a lump-sum investment yields higher returns, dollar-cost averaging can help manage your emotional fluctuations. In turbulent times, the best strategy is the one that allows you to stay in the market.
In conclusion: Let life return to the "big rock".
At the end of the book, Sridro tells a parable about a "big rock".
Your life is a jar. The big rocks are your family, health, career, and dreams; while staring at candlestick charts every day, studying the Fed's interest rate hikes, and arguing with people in groups about whether to go long or short are just sand and water.
If you fill the jar with sand first, you'll never be able to fit a large rock in.
Active investors are like foxes, spending their days calculating financial reports and guessing market trends, working themselves to the bone, but most likely still losing money in the end.
We should be like hedgehogs. Hedgehogs only know one important thing: the market is going up in the long run. I just need to hold onto everything and then enjoy life.
In this era of great power rivalry fraught with uncertainty, true wealth is not about gambling with your life for a mere 4% chance, but about passively investing, entrusting your wealth to the advancement of human technology, and giving your time back to the people you love most.
This is not only the wisdom of financial management, but also the liberation of life.