Investment Context: Defining a Genius and an Idiot

Updated: Oct 26, 2020

In the 2nd quarter of 2019, I was on a bit of a high.

Even though I missed the original team terribly, their efforts had paid off and the Money Maverick brand was doing quite well. The investment markets were picking up nicely from Jan to April, meaning that both mine and client invested monies had gone up over 20% after careful fund filtering and selection. (It would later drop and climb again towards the end of the year.)

I basically felt like I could do no wrong, and it was about to cost me dearly.

The Client Already Committed to Rejecting Me

I met up with a prospect, who asked what my returns were like for 2018.

“-2.2%, rounded up,” I declared proudly.

“Oh.” The smile from his face disappeared a little. I frowned, noticing this.

“The market was pretty bad last year.”

“Yeah…” he agreed hesitantly.

I did not get why. I thought I was awesome. We made small talk, I showed him some funds and he said that he'd consider it.

Months later, he would tell me that he invested in the SNP500 instead.

“Why?” I almost exclaimed. I couldn’t really tell from the text, but the wording sounded pretty surprised that I was surprised.

“It has better returns, about 9 - 10% a year,” he said simply. And he would not have any arguments on it.

Context: How It Makes You a Genius or Idiot

Context is defined (Oxford) as "the circumstances that form the setting for an event, statement, or idea, and in terms of which it can be fully understood."

In this context, 2018 returns for the SNP500 were -6.24%. Even with dividends reinvested, it was a pretty negative number. With this context in mind, a -2.2% return is not awesome but it's certainly a better result than -6.24% for the same comparison that was originally intended for the above.

But I was so wrapped up in my own head that I assumed that saying a number without providing any context would give me immediate credibility and thus, I lose the sale.

I learnt the hard way how important context is.

And its even MORE important to you guys, my readers and clients.

Even though not many investors are salespeople/financial consultants, let alone investment specialists, they also tend to make this mistake when selecting funds.

For example, the Financial Blog My KayaPlus wrote an End-Review 2019 that his Stashaway account did 24% in the year. This account was at the highest risk level available at the time (36%) and already achieved that result by December 23rd, with one more week to increase returns.

He was wildly impressed, especially because in his own words: 'Our YTD Investments have certainly not hit 20% yet.'

Some people who read this may automatically assume that it's the best result one can get and derive the conclusion on where they should invest based on those returns.

However, the SNP500 did 28.9% that year.

Nasdaq, which is closer to the risk level of what I was taking, did 35.2%.

My portfolio did 41.4%, while my growth-focused clients typically did between 26% and 47% net of fees without even being invested from the beginning of the year.

READ ALSO: Why you should invest aggressively NOW (and how you still can have peace of mind)

None of us are geniuses; nor am I slamming Kaya, Stashaway or even throwing myself under the bus for some of my clients underperforming the SNP that year.

The context is simple - 2019 was a really good year for investments. That's all.

This was despite a whole lot of noise that it wouldn't be with the LITERAL TRADE WAR BETWEEN CHINA AND USA. Some pundits (morons?) even suggested it would cause World War III.

And in my previous articles, you can see that at varying times different geographies and sectors outperform others. A more turbulent and defensive prolonged investment period may let Stashaway outperform an aggressive hyper-equity portfolio, for example.

There are different risks and rewards that achieve various results. Some people will opt for safety over speed and vice versa.

So Context is important before you randomly select investments from something you read online. (And of course, you can receive this context from an Investment Specialist like myself.)

Conclusions: Being a Genius More Often Than an Idiot

I'm not immune to being an idiot occasionally, and I'm pretty sure even the best investors would make idiotic choices sometimes.

But some ways you can mitigate this are as such:

1) Context: Context is key. Something that performs may have nothing to do with your own investment ability or your advisors investment ability. When reflecting on past returns, figure out what kind of result that your counterparts were getting or expected to get.

2) Benchmarks: Perhaps ones you set yourself, ones that are provided for you or from other products you are looking at - that can be of consideration.

This is not to suggest that you should choose whatever is outperforming a benchmark the most at the time, but your consultant should be competent enough to discuss it.

You also have to bear in mind that benchmarks should be equivalent - if they are not (e.g. using a China Fund to beat the SNP500), your Investment Specialist should be able to explain to you the additional or different potential risks that could be involved.

Accounting for such things is what has allowed me to keep investing in things that outperform what most personal finance , low-cost index fund die-hards choose, as you can see bellow.

SEE ALSO: Geographical Risk - How I've Comfortably Beaten The SNP500 By Double Digits Year To Date

3) Long Term Commitment: Remember that some of the best Investment results require extremely long term commitment. For example, the average 20 year return for the SNP500 from 1999 to 2019 is about 6.2%.

This hasn't even accounted for several risk factors - such as management charges (since its an analysis of the index and not an etf/index fund), forex risk, dividend withholding tax, etc.

But there's a ton of answers on Group Forums that will tell you to expect 9% returns or higher. This result is easily derived from SNP500 Annualized returns over a 40 year period, such as from 1970 to 2010.

And there's a ton of expectation difference that should be had if you have a 20 year time horizon and a 40 year time horizon.

So even if you do expect higher returns, do account for your time horizon and potential coin-flip - you can expect some extremely high and extremely low returns over the years that will balance each other out. Not every year should be a wildly good year, even if it feels that way sometimes.

By understanding the context of how investments perform, you'll be able to make better investment decisions. You also won't get fooled into some jackass who promises to deliver outrageous 30% returns every year for the rest of your life, when that's only happened in 2019 and 2020 for their Tech Fund.

ie this jackass

Money Maverick

As one of the Top Financial Bloggers in Singapore (Feedspot,, I would be happy to answer any emails and questions you may have, as I have been doing for my readers over the past few years - especially about Insurance and Investing, as it is my forte of personal and professional knowledge.

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Money Maverick is a Licensed Financial Consultant with MAS, who specializes in Investments and Critical Illness Insurance.

The views on his blog are strictly of his own opinion and have no affiliation to any of the companies he works with.

Here are some of my resources on:

1) Investing: Why you should invest aggressively NOW (and how you still can have peace of mind)

2) Insurance: The Newest, Rising Critical Illnesses in Singapore (2019)

3) Retirement and Leverage: Leveraging a Private Annuity, Pros and Cons (ft. Jamus Lim)

4) Spending and Saving: The Biggest Spending Mistakes You DIDNT Even Know you were Making (and how to avoid them)

5) Job Assessment: A Case Study on How a $6k/mth Girl makes MUCH more money than a $10k/mth Guy

6) Financial Optimisation: How I Avoid the Largest 'Fees' of All

The views, opinion and information in all articles are those of the author.

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