We are all familiar with the Publishers Clearing House mailers where the envelope reads something like the title above. We are attracted to the possibility of “winning”, even if the odds of doing so are very small. Perhaps this carries over to other, more substantive areas of our lives as well.
Mutual funds that have a single great year often see their assets balloon as investors rush to invest in the latest “hot” fund. Even a cursory look at the data, however, tells us that it is exceedingly rare for a hot mutual fund to “persist”. That is, the fund usually cannot replicate their hot period and mostly these funds become average or worse.
Despite the lack of long-term success with this approach, large financial brokerage firm salespeople spend most of every day trying to persuade investors that they have indeed uncovered the next great fund or great stock. They play into the “you too could be a winner” mentality. As Bernard Baruch wrote, “Don’t try to buy at the bottom and sell at the top. No one does …except liars.”
The biggest problem with the “winners” approach is that it diverts our attention from our core goals. We know that the odds are long but always think we may be the lucky ones this time. Purveyors of insurance and investment products structure their sales approach to fit this narrative. There is a fundamental difference between investing for the long term and speculating. Know the difference. Don’t let the “you too could be a winner” philosophy supplant a real investing strategy.