Morgan Housel | The Motley Fool Investor: The emperor of all strategies

Posted

You can learn a lot about investing by observing how other industries solve problems. Take cancer.

Richard Nixon signed the National Cancer Act in 1971. "I sent a message to the Congress the first of this year, which provided for a national commitment for the conquest of cancer, to attempt to find a cure," he said.

Ken Burns' documentary "The Emperor of All Maladies" details what happened next: Decades of research that raised our understanding of cancer and lifted life expectancies for cancer patients.

But a cure — always seemingly right around the corner — remained mostly elusive.

Cancer is really good at what it does. It has millions of years of evolutionary advantage over the people trying to outsmart it.

A few years ago, Harold Varmus, director of the National Cancer Institute, gave a speech highlighting researchers' frustration. He explained:

"There's an often noted paradox that we must now honestly confront. Despite the extraordinary progress we've made in understanding the underlying defects in cancer cells, we have not succeeded in controlling cancer as a human disease to the extent that I believe is possible."

The way forward — not a cure, but the most rational way forward — Burns explains, was to double down on cancer prevention in addition to research.

"It has been estimated that if society were to implement what's known about prevention, cancer deaths could be reduced by 50 percent," Johns Hopkins doctor Bert Vogelstein says in the film.

MIT biologist Robert Weinberg gives a great interview in the documentary arguing the benefits of prevention. Just as importantly, he explains why it's often ignored:

"If you don't get cancer, you're not going to die from it. That's a simple truth that we (doctors/researchers) sometimes overlook because it's intellectually not very stimulating and exciting.

"Persuading somebody to quit smoking is a psychological exercise. It has nothing to do with molecules and genes and cells, and so people like me are essentially uninterested in it — in spite of the fact that stopping people from smoking will have vastly more effect on cancer mortality than anything I could hope to do in my own lifetime."

How investing fits

This is where investing comes in.

We've been studying investing for centuries. We're better at it now than in the past. Costs are lower and access is broader. It's the equivalent of increasing life expectancies of a cancer patient.

But mastering investing — a cure — remains elusive.

Just like cancer, investing is full of smart researchers. They dig through data and run experiments to forecast market returns, time the next recession, avoid the next bear market and optimize the perfect portfolio. They're noble people, and a lot of them are helping the world.

But we have to acknowledge what Harold Varmus did with cancer: Despite our best efforts, we have not mastered investing like people think we can. The evidence is overwhelming.

Part of this is because markets are capitalism's equivalent of cancer. Every time you try to get ahead of it, it adapts and morphs into something else, resisting treatments that may have worked in the past.

But we should also acknowledge what Robert Weinberg did with cancer. Investing has its own version of prevention — simple behavioral changes that massively improve results, but are often ignored by professionals because they're not intellectually stimulating.

Take saving. The goal of investing is to have enough money to meet future goals. One of the easiest and most effective ways to do that is saving more money. But telling people to save more money is absent from investing commentary for the same reason smoking cessation is absent from Pfizer's research lab: It's not their problem, even if it's the right solution to the problem.

Or take dollar-cost averaging. You buy the same amount of stocks each month, come rain or shine. It's so boring. You'll get booed off TV recommending it. But it's so hard to beat as an investing strategy. Like quitting smoking, as advice it is as dull as it is effective.

Steady but effective

Almost everyone can improve their investing results by increasing the length of time they're investing. But good luck starting a hedge fund with that pitch. It's not exciting enough.

Want to make a million dollars over the next 40 years? You don't need to catch the next megatrend. Just invest in a Roth IRA rather than a taxable account. Max it out each year and the tax savings alone is a million bucks. This is eat-your-vegetables advice that will change people's lives but gain you no Twitter followers in the process.

The problem with both medicine and investing is this: Advice that sounds basic but is important isn't as valued as complicated advice that may only be necessary if you ignored the basic advice to being with.

The emperor of all strategies is realizing that the most effective solution to a complicated problem is often the most obvious one sitting right in front of your nose.


TALK TO US

If you'd like to leave a comment (or a tip or a question) about this story with the editors, please email us. We also welcome letters to the editor for publication; you can do that by filling out our letters form and submitting it to the newsroom.

Powered by Creative Circle Media Solutions