Your Investing Edge

Let’s pre­tend for a moment that the infor­ma­tion in my book is tru­ly dif­fer­en­ti­at­ing. A way to invest and win all the time. Why can’t peo­ple stick with it?

Reading this arti­cle on black­jack card count­ing titled ’sur­viv­ing the con­tin­u­ous chain of dis­ap­point­ments’ helps under­stand why.

The key to Thorp’s sys­tem was the abil­i­ty to sur­vive los­ing long enough for the 2% edge to mate­ri­al­ize. It meant con­stant­ly absorb­ing man­age­able dam­age. Many peo­ple can’t, or refuse to, do that.

Here’s a guy who had a defin­i­tive sys­tem to beat the casi­no… over the long term. But, peo­ple who tried to learn the sys­tem from him couldn’t stom­ach the short term swings, know­ing full well they had the long term advan­tage.

A 2% edge is enough to secure a for­tune in the long run. But it also promis­es hell in the short run, since Thorp was still like­ly to lose about half his hands.

If you’re build­ing wealth for the long haul using the div­i­dend aris­to­crats and div­i­dend rein­vest­ing, and you glance at the size of your ele­phant (your port­fo­lio bal­ance) instead of your pay­check you’re going to feel unnerved at times. A lot of times.

It’s a per­fect­ly nor­mal feel­ing to have giv­en the cir­cum­stances.

Hang in there. We have one advan­tage over the card play­ers. When the “mar­ket is down” our rein­vest­ments accel­er­ate our rais­es (because we’re rein­vest­ing when the stock price is low­er, and so the div­i­dend yield that we’re “lock­ing in” is high­er — seri­ous­ly, read my book). Think about the extra pay­check you’ll have, instead of the low­er bal­ance on your state­ment, and keep steady.

Remember, you’re in it for the long term. The rais­es you get will com­pound for the rest of your life. That feel­ing of see­ing your Elephant’s Paycheck grow over time will out­last any tem­po­rary set­backs due to mar­ket volatil­i­ty, no mat­ter how painful.