by Joe Martinson, Investment U Research
Friday, August 16, 2013: Issue #2101
The bright stage lights glare on your eyes. The applause light flashes for your rival as your stomach tightens.
You are a contestant on the hit TV show Wealth Jeopardy! Your host is Alex Green, the Chief Investment Strategist for The Oxford Club.
You are playing for your retirement, not nearly big enough after the meltdown in 2008. So winning or losing this game defines your destiny.
So far in the Double Jeopardy! round, you have done poorly, just like your portfolio over the last five years. The last category with questions left is tough… Highly Efficient Markets.
You think about the raging academic debate over whether it is possible to beat the market.
One side claims the market is so highly efficient that outperforming the market over time is impossible; the other argues that skill or certain schemes can make a difference. Even the host, Alex, picked a side in a recent Investment-U article.
But which side did he choose … and will the judges agree? Your palms are clammy; your wealth depends on understanding the issues and how they apply to you.
“I’ll take Highly Efficient Markets for 600, Alex,” your opponent intones. You ponder legendary trader Jesse Livermore and how he made massive fortunes three times. Then you remember that he also lost those fortunes each time. He shot and killed himself after his last meltdown.
Alex reads the answer as it flashes on the screen. “Buffett, Lynch and Templeton, all personal heroes of mine, proved it can be done.”
Before he finishes, you hit the buzzer.
“Can anyone beat the market in the long run?” you croak through dry lips. “Correct” is the reply.
You wish you had worn antiperspirant, worrying that the flood under your jacket will soak through as you gain control of the board. “I’ll take Highly Efficient Markets for 800.”
“The Oxford Club, under his leadership, had a 10% annualized return over a 10-year period, vs. 3.7% for the Wilshire 5000, and with lower risk, according to the Hulbert Financial Digest.”
“Who is Alex Green?” you shout after slamming down your button.
A sly smile spreads across Alex’s face with a twinkle in his eye.
Somewhere faintly above the clamor of thoughts swirling in your head you hear “Correct.” Your score shoots up, your legs turn to Jell-O in relief.
With that, the round ends, and they cut to commercial. You take a drink of water and wipe your brow.
Someone called a “grip” installs barriers between the contestants’ lecterns. You wish you had time to go to the bathroom.
You are instructed to write down your wager with a light pen on your electronic display. You’re still in last place, so you bet it all.
The cameras reposition, the floor manger counts it down from five. You are back on the air.
After a recap, Alex reads the Final Jeopardy answer “The proper response when asked if any particular person, including you, will beat the market in the future.”
The theme song “Think!” starts. It’s so hard to concentrate with that agitating ditty marking the passage of time.
You scribble “What is who knows?”
Your question is the first to be revealed. Your spirits soar as you are judged correct. You capture the lead, first time that evening.
Just then a loud noise startles you.
You awaken dazed and confused at home reclining in your Lazy-Boy, TV remote in one hand and brokerage statement in the other. Alex Trebek is on your big screen HDTV saying goodnight…
Wealth Jeopardy! isn’t a game.
Creating and preserving wealth is extremely difficult. Each year millions of novices around the world risk their assets trying to outsmart the market. And each year most of them fail, because they don’t follow the principles of wealth creation and successful investing that we talk about every day at Investment U and The Oxford Club, including proper asset allocation, portfolio diversification, position sizing, and trailing stops.
It’s up to you to put those principles into practice. But as a longtime Oxford Club Member, and now as the Member Advocate, I can tell you that if you do, you can beat the market.