The Siren Songs of Investing

“First you will raise the island of the Sirens, those creatures who spellbind any man alive… The high, thrilling song of the Sirens will transfix you, lolling there in their meadow, round them heaps of corpses rotting away, rags of skin shriveling on their bones…”

- Circe’s Warning to Ulysses in The Odyssey

In Greek mythology, the Sirens used seductive songs to tempt men and overwhelm their ability to think rationally. Anyone who heard these enchanting voices would adjust course and willingly smash their ships against the rocks.

But what were the Sirens actually singing about? What could possibly work on all who passed through their straits?

“We know all the pains that the Greeks and Trojans once endured on the spreading plain of Troy when the gods willed it so - all that comes to pass on the fertile earth, we know it all!”

- The Sirens’ Song

The Promise of Knowledge.

We want answers. We want to connect the dots. We want to believe everything is knowable.

And as investors, we too are bombarded by spell-binding Sirens that sound believable. Predictions and ideas spouted with such conviction that we are tempted to adjust our current path in the hopes of something more.

One of my favorite investing graphics perfectly depicts how this investment journey can often feel:

The following are three Siren Songs investors will need to guard themselves against if they are to stay on course.

The Siren: Market Gurus

The Siren Song: Trust me, I know what is going to happen. Market timing is possible!

The Reality: To paraphrase Peter Lynch - far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves. The risk of being out of the market is greater than the risk of being in. Stay invested.

To give you an idea of what some of these songs sound like, take a look at the following graphic from Jon Boorman:


The Siren: Product Companies

The Siren Song: Turn a blind eye to costs and watch our active managers outperform!

The Reality: Decades of research and dozens of studies have shown active managers fail to outperform the very benchmark they are trying to beat. Due to compounding fees, transactions costs, and tax consequences - the odds are heavily stacked against anyone looking to consistently “beat the market” over the long-term.

That doesn’t mean it can’t be done. But it’s impossible to know in advance which managers will be in the lucky 5-10% over a 15-year time horizon.

SPIVA - Data as of dec. 31, 2018

SPIVA - Data as of dec. 31, 2018

The Siren: Your Neighbor / Friend / Brother-in-Law

The Siren Song: I made so much money on [insert single stock ticker]!

The Reality: They will only tell you about their winners. While concentration might be a shortcut to build wealth, it’s also the fastest way to destroy it. Diversification and proper asset allocation protect us from our inability to predict the future.

The randomness of the following quilt highlights how return streams for risky assets are unknowable.

AA Quilt2.png

Back to The Odyssey.

So while everyone else destroyed themselves on the rocks, how did Ulysses survive his encounter with the Sirens?

He placed beeswax in the ears of his oarsmen to block the irresistible songs. He tied himself tightly to the mast and commanded his sailors to ignore his pleas for release. In short, he recognized the inescapable dangers awaiting him and created a system to ensure success.

With an infinite number of ways to invest and market Sirens singing sweet songs, you need a process that is logical, evidence-based, and has emotional guardrails in place to keep you invested.

Only then can you have the confidence to tie yourself to your portfolio and survive the treacherous times.