Gatsby and Investor Behavior

"Gatsby believed in the green light, the orgiastic future that year by year recedes before us. It eluded us then, but that's no matter - tomorrow we will run faster, stretch out our arms farther.... And one fine morning-- So we beat on, boats against the current, borne back ceaselessly into the past."

The above quote from the final page of F. Scott Fitzgerald's The Great Gatsby is a beautifully written description of the American psyche. It can also be read as an insight to investor behavior as it relates to the stock market. That is because we believe in the endless possibilities that the market can bring to us. Our dream is the hope that a person can choose the right investment and get rich. This hope has been ingrained in our American DNA through literature, movies and television. 

Wall St can be the place of fortunes and when its not, it can destroy financial lives if we take risks we dont understand or cannot afford. Yet we keep going back and we continue to believe that if we pick the right stock, mutual fund or adviser we can achieve the elusive - consistent market beating returns that will result in easy financial wealth.

We believe in the dream and ignore the academic research that says: over time, an investor has a very low probability of beating the market; and that holding a portfolio of simple index funds, that represent the overall market, outperforms almost all other strategies. Yet "we beat on, boats against the current"  trying to beat the market. Unfortunately, there are really no shortcuts. That is the tragedy of Gatsby. He tried to achieve his dream through shortcuts. It cost him his life. 

There are no shortcuts when it comes to investing success. Occasionally, some get lucky and get rich on a small investment. Those are the rare exception. The secret to successful investing is a disciplined commitment to saving, managing our get rich quick emotions by holding a risk appropriate, well diversified portfolio of various asset classes, rebalancing, and keeping costs low through the use of index funds.